INTEGRATED ANNUAL REPORT - panafricanresources.com · The process for defining the report content was guided by the recommendations contained in the International Integrated Reporting

PROFITABLE SUSTAINABLE STAKEHOLDERS

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INTEGRATED ANNUAL REPORTfor the year ended 30 June 2018

CONTENTS

Pan African Resources at a glance flapContents flapAbout this report ifc

STRATEGIC REPORT: BUSINESS AND STRATEGIC OVERVIEW 1Our purpose, vision and strategy 1Key features 2Who we are 4Operating assets 6Business model 8Chairmans statement 10Chief executive officers statement 12Strategic scorecard 18Operating environment 21Risk, opportunities and material issues 22Stakeholder engagement, value creation and distribution 31

STRATEGIC REPORT: PERFORMANCE REVIEW 35Financial directors review 36Five-year review 46Operational and performance review 48

Barberton Mines 48Evander Mines 52Elikhulu 56

Operational production 58Abridged Mineral Resources and Mineral Reserves report 60

SUSTAINABILITY REVIEW 79Human capital 80Manufactured capital 85Social and relationship capital 87Intellectual capital 91Natural capital 94

TRANSPARENCY AND ACCOUNTABILITY 99Board of directors 100Executive and operations management 102Corporate governance 103Remuneration review 111Part one: remuneration policy 114Part two: remuneration implementation report 122

ANNUAL FINANCIAL STATEMENTS 127Audit committee report 128Directors statement of responsibility 132Certificate of the company secretary 132Directors report 133Independent auditors report

United Kingdom 135South Africa 141

Consolidated and separate statement of financial position 146Consolidated and separate statement of profit or loss and other comprehensive income 147Consolidated and separate statement of changes in equity 148Consolidated and separate statement of cash flows 150Notes to the consolidated and separate annual financial statements 151

SHAREHOLDERS AND OTHER INFORMATION 217Shareholders analysis 218Notice of annual general meeting 219Form of proxy United Kingdom 225Form of proxy South Africa 227Alternative performance measures 229Glossary 234Company information ibcForward-looking statements ibcShareholders diary ibc

SUPPLEMENTARY INFORMATIONThis report represents one of three elements of Pan African Resources 2018 financial year communication strategy with stakeholders, the other two being:

Pan African Resources sustainable development report Contains additional non-financial

disclosures referencing GRI

The sustainable development report is compiled based on a self-declared GRI Application Level B

http://www.panafricanresources.com/sheqc/ gri-and-sustainability/

Pan African Resources Mineral Resources and Mineral Reserves report Provides technical information on the

mineral assets of Pan African Resources in compliance with the South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code)

http://www.panafricanresources.com/ mineral-resource-mineral-reserve/


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MINERAL RESOURCES AND MINERAL RESERVES REPORTfor the year ended 30 June 2018


GROW

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SUSTAINABLE DEVELOPMENT REPORTfor the year ended 30 June 2018

The above documents, together with this 2018 integrated annual report, are available on the groups website at http://www.panafricanresources.com/investors/financial-reports/

STRATEGIC REPORT Our strategic report, including the investment case from pages 1 to 97, was reviewed and approved by the board on 19 September 2018.

ALTERNATIVE PERFORMANCE MEASURESThroughout the strategic report we use a range of financial and non-financial measures to assess our performance. Management uses these measures to monitor the groups financial performance, alongside IFRS measures, because they assist in illustrating the underlying financial performance and position of the group. We have defined and explained the purpose of each of these measures on pages 229 to 233, where we provide more detail, including reconciliations to the closest equivalent measure under IFRS. These APMs should be considered in addition to, and not as a substitute for, or as superior to, measures of financial performance, financial position or cash flows reported in accordance with IFRS. APMs are not uniformly defined by all companies, including those in the groups industry. Accordingly, APMs may not be comparable with similarly titled measures and disclosures by other companies.

ASSURANCE Pan African Resources external auditors, Deloitte LLP and Deloitte & Touche (Deloitte) has independently audited the annual financial statements for the year ended 30 June 2018. Its unmodified audit reports are set out on pages 135 and 141.

FORWARD-LOOKING STATEMENTSRefer to the forward-looking statements on the back cover of this report.

STATEMENT FROM THE BOARD OF DIRECTORS The board acknowledges its responsibility to ensure the integrity of the integrated annual report. The board has applied its collective mind in the preparation and presentation of the report and is satisfied that the report addresses all material matters and fairly presents the integrated performance of Pan African Resources.

Keith Spencer Cobus LootsChairman Chief executive officer

19 September 2018

FEEDBACKWe welcome any feedback stakeholders may have on our integrated annual report. Please contact [email protected] with your feedback.

Online copies of our integrated annual report are available on our website at www.panafricanresources.com.

A limited number of hard copies are available on request from the company secretary, whose details appear on the inside back cover.

ABOUT THIS REPORT

SCOPE AND BOUNDARYWe are pleased to present Pan African Resources integrated annual report (the report) for the year ended 30 June 2018. This report provides an overview of the groups integrated approach to its financial and non-financial information and is aimed at our shareholders and other interested stakeholders. The report includes the activities of the holding company, Pan African Resources, and all its operations and subsidiaries. The groups subsidiaries are incorporated in South Africa and their functional currency is the South African rand (ZAR). The groups business is conducted in ZAR and the accounting records are maintained in this currency, except precious metal product sales, which are conducted in United States dollars (USD) before conversion into ZAR. The ongoing review of the results of the operations conducted by executive management and the board is also performed in ZAR. For ease of reference, abbreviations and terms are defined in the glossary on page 234.

PROCESS FOR DEFINING REPORT CONTENTThe process for defining the report content was guided by the recommendations contained in the International Integrated Reporting Councils (IIRC) framework. We continue to embed the guiding principles and content elements contained in the IIRCs framework. The report content focuses on those issues which materially impact our ability to create and sustain value over the short term (one year), medium term (two to three years) and long term (beyond three years). Pan African Resources appreciates that its business operations use various forms of capital, including financial capital, human capital, natural capital, intellectual capital, manufactured capital and social and relationship capital. Consideration of the six forms of capital is shown in our business model on page 8.

Further, the report was prepared in line with both the AIM Market (AIM) of the London Stock Exchange (LSE), the LSEs international market for smaller growth companies, and the Johannesburg Stock Exchanges (JSE) Listings Requirements. We have applied the principles of the King IVTM Report on Corporate Governance for South Africa, 2016 (King IV TM) with a report included on our website at http://www.panafricanresources.com/wp-content/uploads/KING-IV-REPORT-FINAL.pdf. Aspects of the UK Corporate Governance Code (UK Code) were considered in the preparation of the report. The sustainability information contained in this report and online was prepared based on the Global Reporting Initiative (GRI) standard disclosure guidelines. A separate GRI report is available on our website at

http://www.panafricanresources.com/sheqc/gri-and-sustainability/.

The abridged Mineral Resources and Mineral Reserves Report (MR&MR) was based on the Mining and Metals Sector Disclosure Guidelines and the South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves, 2016 edition (the SAMREC Code). The annual financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), the South African Institute of Chartered Accountants Financial Reporting Guidelines, as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the UK Companies Act 2006 (UK Companies Act).

King IV TM IIRC IFRS

The following tools will assist you throughout the report:

For further reading on our website at www.panafricanresources.com

For further reading in this report

Words with this symbol are defined in the Alternative Performance Measures (APMs)

PAN AFRICAN RESOURCES AT A GLANCE

PAN AFRICAN RESOURCES IS A MID-TIER AFRICAN-FOCUSED PRECIOUS METALS PRODUCER.THE KEY ENABLERS OF OUR STRATEGY ARE:

PEOPLE

FOSTERING RELATIONSHIPS THROUGH ACTION, INTEGRITY AND HONESTY

Committed to sustainability

Focused on achieving zero-harm

Operational transformation trusts are actively involved in local economic development (LED) projects

Legacy of environmentally responsible mining with estimated rehabilitation liabilities fully funded

Strong, transparent relationships with labour, government and communities

People-focused ethos with a largely stable workforce

Disciplined approach to capital management

Management team drives shareholder value through judicious capital allocation

Limited gearing with strong statement of financial position

Investments are required to provide appropriate shareholder returns

ACTION

RESULTS

ACTION

RESULTS

PEOPLE

ACTION

LEADERSHIP, PLANNING AND CONTROL

Preferred gold investment

Profitable production growth from long-life assets

Long-life quality gold mining operations: Barberton Mines Proprietary Limited (Barberton Mines) up to 20 years life-of-mine, and Elikhulu Tailings Retreatment Plant (Elikhulu) 13 years life-of-mine

Significant resource and reserve base, with a focus on bringing these ounces to account in the form of cash flows and earnings

Capacity to grow organically and acquisitively

Strong track record of replenishing Mineral Reserves through effective exploration to increase the life-of-mine

Gold mining assets are expected to provide a safe-haven investment in volatile global markets

RESULTS

DELIVERING ON OUR OBJECTIVES WITHOUT COMPROMISE | MAXIMISING SUSTAINABLE GOLD PRODUCTION | POSITIVE IMPACT ON EARNINGS

Proven business model committed to low-cost production and successful organic growth with value-accretive transactions Culture of delivery Barberton Tailings

Retreatment Plant (BTRP) and Evander Tailings Retreatment Plant (ETRP)

Quality high-grade and low-cost assets delivering strong cash flows and robust returns

Elikhulu is scheduled to be producing at steady state ahead of schedule

Improved group sustainability following the cessation of Evander Gold Mining Proprietary Limiteds (Evander Mines) large-scale underground operations (which includes 7 Shaft, 8 Shaft and the run-of-mine circuit in the Kinross metallurgical plant)

Total Mineral Resources: Gold of 33.30Moz and an attractive project development pipeline

Delivering consistent and increasing returns Historically provided attractive dividend yield

with a track record of sector-leading dividends Continuing operations, such as Barberton

Mines and our surface assets at Evander Mines, have demonstrated robust profitability and cash flow generation

Cash-flow-generative assets typically enable consistent dividend payments to be made

Dividends were curtailed in the current financial year due to costs associated with the cessation of Evander Mines large-scale underground operations

Project delivery and requisite shareholder returns: BTRP payback within 18 months and ETRP payback within three years

The cessation of the high-cost Evander Mines large-scale underground operations has resulted in the group being repositioned as a low-cost gold producer, although this resulted in the recognition of an impairment charge of R1.78 billion or GBP106.3 million in the current reporting period

Cash flow generative Dividend policy linked to cash generation and

a track record of sector-leading dividends Following a challenging year, which included a

persistent low gold price, currency volatility and losses incurred by Evander Mines underground operations and associated retrenchment costs, the board has resolved to forego proposing a dividend for the 2018 financial year

A five-year historical average dividend yield

of more than 4% An appropriate level of gearing associated

with the construction of the R1.74 billion Elikhulu plant

Access to a revolving credit facility (RCF) of R1 billion and a R1 billion term loan facility (Elikhulu term loan facility) funding Elikhulu

OUR KEY STRATEGIC ENABLERS

OUR PURPOSE, VISION AND STRATEGY

OUR PURPOSE is to exploit mineral deposits in a manner that creates value for our stakeholders and for the betterment of society in a sustainable manner.

The strategic scorecard discusses the groups strategic progress in greater detail on page 18.

OUR VISION is to continue to build and grow a mid-tier precious metals producer that delivers on this purpose.

PEOPLE

RESULTS

ACTION

OUR KEY STRATEGIC ENABLERS

1. PEOPLE Fostering relationships through action, integrity and trust

2. ACTION Leadership, planning and control

3. RESULTS Delivering on all our objectives without compromise, maximising sustainable gold and positive impact on earnings

OUR FOUR STRATEGIC PILLARS

STAKEHOLDERS

PROFITABLE

GROWTH SUSTAINABLE

OUR STRATEGY Our growth strategy is executed by identifying and exploiting mining opportunities that create stakeholder value by driving growth in our Mineral Reserve and Resource base, production, earnings and cash flows in a margin-accretive manner, and by capturing the full precious metals mining value chain by focusing on:

low-cost base

growth in Mineral Reserve base and profitable production

positive impact on earnings in a sustainable manner

maximising recovered grade and production tonnes

high margins.

We encourage an entrepreneurial culture that fosters consistent value accretion for stakeholders by first identifying and then executing into opportunities within our business and operations. This culture further contributes to sourcing new investments, organically or acquisitively, thereby bolstering our portfolio of mining assets.

PAN AFRICAN RESOURCES INTEGRATED ANNUAL REPORT 2018 1

PAN AFRICAN RESOURCES INTEGRATED ANNUAL REPORT 20182

STRATEGIC REPORT:BUSINESS AND STRATEGIC OVERVIEW

GOLD SOLD 160,444oz (2017: 173,285oz)

REVENUE3 R1,873.9 million (2017: R2,158.2 million)4 GBP108.5 million (2017: GBP125.1 million)4

EARNINGS PER SHARE CONTINUING OPERATIONS4 11.16 cents per share (2017: 44.78 cents per share)

0.63 pence per share (2017: 2.60 pence per share)

EARNINGS PER SHARE2 (86.03) cents per share (2017: 19.81 cents per share)

(5.15) pence per share (2017: 1.14 pence per share)

HEADLINE EARNINGS2 R229.1 million (2017: R315.6 million)

GBP13.3 million (2017: GBP18.3 million)

HEADLINE EARNINGS CONTINUING OPERATIONS4 R338.6 million (2017: R605.7 million)

GBP19.6 million (2017: GBP35.0 million)

ALL-IN COST PER KILOGRAM FOR CONTINUING OPERATIONS1 R463,145/kg (2017: R392,296/kg)4

KEY FEATURES

1 The all-in cost per kilogram refers to the groups continuing operations.2 The groups key features refer to continuing and discontinued operations collectively.3 Revenue refers to revenue from continuing operations. 4 The prior reporting period figures were represented to

exclude the effect of discontinued operations. Refer to the financial statements earnings per share (EPS) note 15 on

page 173.

GROUP REVENUE3

R million GBP million

2014 2016 2017 2018

R millions GBP millions

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

20

40

60

80

100

120

140

160

2015

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

PROFIT/LOSS AFTER TAXATION

R million GBP million

2014 2016 2017 2018

R millions GBP millions

2015(100)

(80)

(60)

(40)

(20)

0

20

40

GOLD SOLD

Underground operations Surface operations

2014 2016 2017 2018

Ounces

0

50,000

100,000

150,000

200,000

2015

AVERAGE GOLD PRICE VS WORLD GOLD COUNCIL COST

Average spot price received Cash cost^ All-in sustaining cash costs^ All-in costs^

2015 2016 2017 20182014

R/kg

200,000

300,000

400,000

500,000

600,000

700,000

AVERAGE GOLD PRICE RECEIVED

Gold price received

2015 2016 2017 20182014900

1,000

1,100

1,200

1,300

1,400

USD/oz

The town of Barberton in the South African province of Mpumalanga originated in the 1880s after Fred and Henry Barber and their cousin, Graham, discovered gold in the region. In July 1884, the gold commissioner, David Wilson, laid claim to the reef and named the town Barberton.

In 1885, Edwin Bray discovered the Golden Quarry (also referred to as the Edwin Bray tunnel), along with the first gold nugget. This led to Barbertons first gold production in 1886.

The mines that today make up the Barberton Mines complex have been operating for over 100 years and include Sheba Mine, Fairview Mine and New Consort Mine.

Considered one of the mining wonders of the world, the Edwin Bray tunnel began the life of the Sheba Mine. This tunnel is still currently in production, with Sheba Mine the oldest and richest working mine in the world. Its first 13,000 tonnes of ore yielded 50,000 ounces of gold, making it one of the richest gold strikes ever. Around 23 tonnes of gold were mined from the Golden Quarry alone, with 120 tonnes, almost a third of all Barberton mountain lands gold, mined from Sheba Mine.

BARBERTON MINESA BRIEF HISTORY

Sheba Mine operates one of the oldest shafts in the world the Zwartkoppie (ZK) Shaft sunk in 1905.

During a flash flood of the De Kaap River, ten gold bars were lost from Sheba Mine when carriage and horses were washed away.

For most of its early mining life, Sheba Mine was the richest gold mine in the world.

New Consort Mine was originally an area of several small workings, which

were consolidated over time. In 1933, the mine was acquired by Eastern Transvaal

Consolidated Mines Limited, which, in 1948, became a member of the Anglovaal group.

Fairview Mine also started as a group of smaller operations in 1886. In 1955, they were consolidated

under Federale Mynbou and later acquired by Eastern Transvaal Consolidated Mines Limited in 1998.

The three mines Sheba, Fairview and New Consort were purchased by Metorex Limited and Millenium Consolidated Investments in 2003. Since 2007, Barberton Mines have been owned and operated by Pan African Resources.

While the remaining life-of-mine for each of the mines has been estimated at seven to 20 years, Barberton Mines have continually defied these estimates and continue adding to Resources and Reserves by opening new orebodies and extensions.




WHO WE ARE

WHAT WE DO

STAKEHOLDERS

PROFITABLE

GROWTHSUSTAINABLESUSTAINABLE

In the current year, Pan African Resources restructured our business, with a focus on sustainable, low-cost and safe gold production

PROFITABLE The groups strategic focus

is on the exploitation of high-grade orebodies and surface operations that yield high margins with a relatively low-cost base

Our group produces gold from underground operations and from surface tailings and is one of the lowest cash-cost producers of gold in southern Africa

STAKEHOLDERS We have a long track record

of providing a cash return to shareholders through an attractive dividend, when group performance allows. We have an integrated approach to operate sustainably to the benefit of all shareholders

GROWTH We continually consider opportunities

to grow our business in a value-accretive manner to benefit all stakeholders

HOW WE GET THINGS DONE

Continually improving our safety structures, culture and procedures

Integrity and leading by example

Respecting the natural environment

Delivering consistent and increasing returns

Responsibility to the wider employment context

Challenging the status quo

Relentless focus on delivery

OUR VALUES

Exploration phase

Acquired the remaining 26% of Barberton Mines from PAR Gold (previously known as Shanduka Gold Proprietary Limited) in exchange for 295.7 million shares in the company

Exercised the option to acquire 100% of Phoenix Platinum from Metorex for cash in May

Acquired Uitkomst Colliery Proprietary Limited (Uitkomst Colliery) on 31 March for a cash price of R148.0 million

Acquired shares in PAR Gold held by Standard Bank of South Africa Limited and Jadeite Limited for R546.9 million

Commissioned the ETRP

Incorporated as Viking Internet PLC in February

Admitted to AIM in May

Acquired 74% of Barberton Mines from Metorex

Finalised the acquisition of 100% of the share capital of Evander Mines for a total net purchase consideration of R1.3 billion

Commissioned the BTRP

2000

2007

2009

2016

2001

200

6

2013

2015


9.9%

Alpha Investment Group

Proprietary Limited

10.5%

PAR Management Trust

4.95%

PAR Education Trust

24.75%

Mabindu Trust

95%

Evander Gold Mining Proprietary

Limited

100%

Elikhulu Tailings Retreatment Proprietary

Limited

100%

Evander Gold Mines Proprietary

Limited

Concrete Rose Proprietary

Limited (New strategic

BEE partner)

PAR Gold Proprietary

Limited

K2015200726 (South Africa) Proprietary

Limited

ORGANISATIONAL STRUCTURE

ESOP

77.89%

Pan African Resources SA Holdings

Proprietary Limited

49.9%

50.1%

49.9%

100%

Pan African Resources Funding Company

Proprietary Limited

100%

Pan African Resources Management

Services Company Proprietary Limited

95%

Barberton Mines

Proprietary Limited

50.1%

5% 5%

22.11%

DUAL LISTING on Londons AIM and South Africas JSE

MARKET CAPITALISATION at 30 June 2018 of R3.0 billion (2017: R5.3 billion)

DIVERSIFIED SHAREHOLDER base of major South African and international institutions

THE GROUPS BLACK ECONOMIC EMPOWERMENT (BEE) OWNERSHIP for purposes of the Mineral and Petroleum Resources Development Act (MPRDA) equates to 26% for Barberton Mines and Evander Mines

Group BEE restructure concluded during January, resulting in an effective 26% BEE ownership of South African mining operations

Cessation of large-scale mining at Evander Mines underground operations on 31 May

Elikhulu is scheduled to be producing at steady state in October 2018 ahead of initial project schedule

Approval received for Elikhulus development at a cost of R1.74 billion venture to yield over 56,000 ounces of gold per annum over a 13-year project life, boosting group production

Raised equity and secured debt financing to fund construction of Elikhulu Disposed of the Uitkomst Colliery effective 30 June to MC Mining

Limited (MC Mining, previously known as Coal of Africa Limited) for R277.6 million

Concluded a conditional agreement to dispose of Phoenix Platinum for R89.0 million after year-end

2018

2017



OPERATING ASSETS

Zeerust

Rustenburg

Potchefstroom

Klerksdorp

Taung

Kuruman

Vryburg

PAN AFRICAN RESOURCES IS A MID-TIER AFRICAN-FOCUSED PRECIOUS METALS PRODUCER WITH A PRODUCTION CAPACITY OF MORE THAN 170,000oz GOLD PER ANNUM. The groups assets at the end of the financial year include:

GROUP MINERAL RESOURCES (Moz)

Gold (331.2Mt at 3.13g/t)

BARBERTON MINES 1,881 612 20 years

Located in a greenstone belt, this is a low-cost, high-grade operation comprising three underground mines: Fairview, Sheba and New Consort.

Production (tonnes milled): 237,831Produced (oz/annum): 73,125Capacity (oz/annum): 95,000 Tonnage (capacity per annum): 300,000 Sustainable capital per annum: R110.4 millionAcquired: 74% from Metorex in 2007 and then remaining

26% from PAR Gold Proprietary Limited (PAR Gold) in 2009

Resources: 14.9Mt @ 7.54g/t (3.6Moz)Reserves: 8.4Mt @ 5.73g/t (1.5Moz) Head grade: 10.30g/tCash cost: USD1,053/oz

BARBERTON TAILINGS RETREATMENT PLANT 64 9 11 years

Located at Barberton Mines, the R325.7 million gold tailings retreatment plant commenced construction in April 2012, was completed on schedule and within budget, and achieved its inaugural gold pour in June 2013.

Production (tonnes milled): 858,967Produced (oz/annum): 17,504 Capacity (oz/annum): 30,000 Tonnage (capacity per annum): 1.2 million Sustainable capital per annum: R0.5 millionDeveloped: Steady-state production commenced in 2013

Resources: 23.3Mt @ 1.08g/t (0.8Moz)Reserves: 12.6Mt @ 1.36g/t (0.6Moz) Head grade: 1.40g/tCash cost: USD691/oz

BARBERTON MINES Three underground gold mines and the BTRP in Mpumalanga

2.95 Measured 20.10 Indicated 10.24 Inferred


PretoriaGAUTENG Barberton Mines

MPUMALANGA

Nelspruit

BTRP

Barberton

Kruger National Park

ErmeloSecundaElikhulu

ETRP

Evander Mines

Witbank

Middelburg

Johannesburg

GROUP MINERAL RESERVES (Moz)

Gold (239.1Mt at 1.46g/t)

EVANDER MINES1 72 259 0 years

Located in the Witwatersrand basin, comprising 8 Shaft (operations ceased in 2018) and several potential development projects Egoli, Poplar, Evander South and Rolspruit. Egolis revised feasibility study to be completed during the first quarter of 2019.

Production (tonnes milled): 272,124Produced (oz/annum): 48,565 Capacity (oz/annum): 95,000 Tonnage (capacity per annum): 480,000 Sustainable capital per annum: R176.1 millionAcquired: 100% from Harmony in March 2013

Resources: 82.7Mt @ 10.1g/t (26.8Moz)Reserves: 27.5Mt @ 8.3g/t (7.3Moz) Head grade: 5.7g/tCash cost: USD1,682/oz

EVANDER TAILINGS RETREATMENT PLANT 5 122 13 years

A tailings retreatment project that will exploit historically generated gold tailings deposited in the Kinross tailings storage facility (TSF) and surface sources.

Production (tonnes milled): 2,182,358Produced (oz/annum): 21,250 Capacity (oz/annum): 30,000 Tonnage (capacity per annum): 2.4 millionSustainable capital per annum: NilDeveloped: Steady-state production commenced in 2015

Resources: 36.0Mt @ 0.29g/t (0.3Moz)Reserves: 36.0Mt @ 0.29g/t (0.3Moz) Head grade: Tailings: 0.30g/t Surface feedstock: 1.7g/tCash cost: USD738/oz

ELIKHULU TAILINGS RETREATMENT PLANT2 30 1,769 13 years

A tailings retreatment project which will exploit historically generated gold tailings deposited in the Kinross, Leslie/Bracken and Winkelhaak TSFs.

Production (tonnes milled): 12,000,000Produced (oz/annum): 56,000 initially Capacity (oz/annum): 56,000 Tonnage (capacity per annum): 12,000,000Project capital: R1.74 billionDeveloped: Steady-state production expected by October 2018

Inaugural gold pour achieved on 16 August 2018

Resources: 173.7Mt @ 0.29g/t (1.7Moz)Reserves: 154.6Mt @ 0.29g/t (1.5Moz) Head grade: Tailings: 0.29g/tAll-in sustaining cost: USD650/oz

Employees Contractors Life-of-mine Description and location Operational statistics Resources and reserves

1 Evander Mines large-scale underground operations ceased on 31 May 2018. Mineral Reserves reported for Egoli and Rolspruit.

2 Figures in the table are based on definitive feasibility study (November 2016). USD1:ZAR13.50 utilised in conversion.

EVANDER MINES1 Situated in Mpumalanga, comprising Elikhulu, ETRP and several brownfield and greenfield projects

0.98 Proved 10.23 Probable



We use each of the six forms of capital in our business activities to create and preserve shareholder value.

BUSINESS MODEL

Financial capital

Shareholder equity R2,016.7 million

Cash (utilised in)/generated from operating activities before dividend

(R53.2 million)

Debt facilities R1 billion RCF

R1 billion term loan facility for the Elikhulu plant

R140.0 million in general banking facilities (GBF)

Manufactured capital

Reserves Gold 11.22Moz

Resources Gold 33.30Moz

Reinvestment in infrastructure R1.6 billion

Human capital

Employees skills and experience

Skilled and experienced board

2,069 employees

Intellectual capital

Mining and prospecting licences

Key personnel for managing the Biological Oxidation (BIOX) process

Management and the boards combined expertise

Networks and relationships

Leadership, planning and control

Social and relationship capital

Investing in our communities

Stakeholder relations unions, regulators and communities

Natural capital

Energy consumption

Water consumption

Through corporate social investment (CSI) and local economic development

Embracing best practice corporate governance

We are committed to low-cost production and optimising extraction efficiency through our mining activities, while ensuring we invest in the communities in which we operate and maintain a legacy of environmentally responsible mining.

UPLIFTINGCOMMUNITIES

OTHER ACTIVITIES

Barberton Mines and BTRP Evander Mines large-scale underground operations closed in May 2018 ETRP Elikhulu expected to be producing at steady state by October 2018 Phoenix Platinum effective disposal 7 November 2017

MINING ACTIVITIES

BUSINESS ACTIVITIES

Growing the business through organic and acquisitive opportunities such as:

Elikhulu

Egoli Stakeholder engagement with

shareholders, investors, employees, unions, regulators, communities, suppliers and customers

INPUTS

9PAN AFRICAN RESOURCES INTEGRATED ANNUAL REPORT 2018

Financial capital Revenues generated from

continuing and discontinued operations

Gold Platinum group elements

(PGEs)

R2.69 billion R24.7 million

(Loss)/profit after taxation (R1.56 billion)

Cash (utilised in)/generated from operating activities after dividend

(R202.1 million)

Dividends paid to shareholders (for 2017 financial year)

R185 million

Interest payments to debt funders R90.2 million

Government taxes paid (excluding VAT)

R226.6 million

Manufactured capital Gold production 160,444oz per annum

Human capital Zero fatalities

Skills development and training R24.3 million

Employee remuneration R1,035.0 million

Intellectual capital Mining and prospecting licences

Maximised resource utilisation

Social and relationship capital Corporate social investment

and local development

R13.6 million

Stakeholder relations unions, regulators and communities

Regular union meetings, appointment of a dedicated, fulltime community liaison officer at Barberton Mines

Natural capital Energy consumption 1,397,695GJ

Water consumption 16,675m3

Carbon emissions 0.12CO2 e/t milled

Through our business activities and the use of capital inputs, we continue to have a positive impact on the economy and the communities in which we operate.

Supporting South Africas economy through the taxes paid and employment provided for 2,069 people during the current financial year

Supporting entrepreneurs, other sectors and industries through our supply chain

Supporting 31 students with fulltime bursaries in the fields of geology, mining engineering, mechanical engineering, actuarial science, finance, economics and mine surveying in the current financial year

Investing in communities through the groups transformation trusts totalling R12.6 million for the current financial year including gold mining operations and suppliers contributions

Producing precious metals in support of increased investor demand as they seek protection against economic and currency volatility

Creating employment and skills development opportunities to communities through initiatives such as Umjindi Jewellery and the Sinqobile Life Skills Centre, LED/CSI projects leave a sustaining long-lasting impact on communities

Limiting environmental degradation

Minimising the occurrence of illegal mining

Creating shareholder value through dividend distributions

Benefiting communities through continually extending the life-of-mine through exploration

Supporting South Africas transformation goals

Communities benefit from rehabilitation after mine closure

OUTCOMES

Our outputs support our vision to continue building a precious metals business in Africa by remaining focused on our four strategic pillars: profitable, sustainable, stakeholders and growth.

STAKEHOLDER VALUEUsing our financial, human, manufactured and natural capital resources, Pan African Resources endeavours to create value and positively impact all stakeholders with whom it interacts, including communities, employees, government, shareholders and suppliers.

INVESTORS R185 millionTotal dividends paid

GOVERNMENT R226.6 millionTaxes paid (excluding VAT)

SUPPLIERS R1.63 billionLocal procurement expenditure

LOCAL COMMUNITIES R13.6 millionCSI and local development

EMPLOYEES R1,035.0 millionSalaries, wages and benefits paid

OUTCOMES

OUTPUTS

THE GROUP FACED UNPRECEDENTED CHALLENGES, WHICH INCLUDED FALLING GOLD PRICES, VOLATILE EXCHANGE RATES, OPERATIONAL CHALLENGES AT BOTH OUR BARBERTON AND EVANDER OPERATIONS AND A CAPRICIOUS MACRO AND POLITICAL CLIMATE FOR LABOUR AND COMMUNITY RELATIONS IN SOUTH AFRICA.

CHAIRMANS STATEMENT

Keith SpencerChairman



PAR IAR 2018 Front PART1 -16 Oct Pr5.indd 10PAR IAR 2018 Front PART1 -16 Oct Pr5.indd 10 2018/10/23 5:27 PM2018/10/23 5:27 PM


The key challenges and matters that required managements attention during the 2018 financial year are as follows:

Segment Challenge/Opportunity Management action Status

Evander Mines underground operations

Curtailment of the cash burn at Evander Mines underground operations, particularly given the depressed ZAR gold price environment

Opportunity to mine the shaft pillar and perform reclamation work

The curtailment of large-scale underground mining operations at Evander Mines and the resultant retrenchment of 1,635 employees was difficult and regrettable, however, our group had no viable alternative. More detail on considerations in this regard and process followed is included in the operational and performance review on page 53

The management team is currently reviewing and assessing options to access and mine Evander Mines 8 Shaft pillar

The retrenchment process was successfully concluded on 31 May 2018. The requirements of S189A of South African Labour Relations Act, 66 of 1995 were complied with

The outcome of the assessment to mine the Evander Mines 8 Shaft pillar will be communicated in the near future

Elikhulu Construction of the Elikhulu plant ensuring the plant is completed on schedule and within budget

Construction commenced in August 2017, with detailed planning and coordination to minimise potential delays and cost overruns

Elikhulus inaugural gold pour was on 16 August 2018, within one year of inception of the construction. The plant was fully commissioned during September 2018. Construction work on the enlarged Kinross TSF continues

BTRP Unexpected coarse fraction material encountered, resulting in reduced plant throughput and gold recoveries from the BTRP

Installation of a regrind mill to assist with material handling and improved recoveries from the Harper dump coarse fraction material. Process of design and construction was fast tracked, and completed in less than six months

The regrind mill was successfully commissioned in May 2018, and the BTRP is again performing in line with expectations

Fairview underground operations

Limited mining flexibility within the Fairview Main Reef Complex (MRC) orebody

Development of two high-grade mining platforms in the MRC orebody to improve mining flexibility. This development was completed during January 2018

Barberton Mines has increased its ongoing development rates in the 2019 financial year with the objective of establishing a third high-grade platform in the Fairview 11-block by the end of June 2019

The 358 and 272 high-grade mining platforms are currently in production with a commensurate increase in Barberton Mines head grade in the second half of the 2018 financial year. These platforms will be available for the next two to three years, allowing sufficient time for development into new mining areas

Fairview mining operation is restricted by the hoisting capacity of its 3 Decline, which is also used by employees to access workings below 42 Level and the high-grade 11-block of the MRC

The Fairview sub-vertical shaft project will improve ore handling efficiencies and significantly reduce the time taken by employees to access high-grade mining platforms. The sub-vertical shaft project is estimated to improve production by approximately 7,000oz to 10,000oz per annum

The R105.0 million project is scheduled for completion over the next two to three years

Further organic growth

Barberton Mines Royal Sheba Project presents an opportunity to expand Barberton Mines production profile and access low-cost near-surface mineable ounces over the short to medium term. We did not previously identify the opencast opportunity at Royal Sheba and are exploring similar targets within our mining right area

Engaged in a surface drilling campaign and appointed DRA Global to complete a feasibility to mine the Royal Sheba orebody as an opencast mining operation and then in future an underground operation

The drilling campaign has been completed with excellent results confirming the extension of the orebody to surface. We have updated the market on the prospectivity of Royal Sheba, and are now considering alternatives to expedite first gold and a large steady-state operation

Labour relations

Barberton Mines wage agreements expired at the end of the current reporting period

Engaged with representative unions in order to agree a multi-year agreement to the benefit of all stakeholders

Concluded a three-year wage agreement with Barberton Mines representative unions

For further details of the groups mining operations, refer to the operational and performance review on page 48.




Cobus LootsChief executive officer

THE PAST FINANCIAL YEAR HAS BEEN THE MOST DIFFICULT AND CHALLENGING PERIOD FOR OUR GROUP SINCE I BECAME A DIRECTOR OF PAN AFRICAN RESOURCES IN 2009. THE IMPACT OF A DEPRECIATING ZAR GOLD PRICE WAS COMPOUNDED BY OPERATIONAL ISSUES AT BARBERTON MINES AND EVANDER MINES, AND TOOK PLACE IN A MARKET THAT WAS NEGATIVE ON MINING AND GOLD EQUITIES IN SOUTH AFRICA. Pan African Resources was facing the makings of a perfect storm in February 2018, with the rand having appreciated some 9.7% from 1 July 2017, and the ZAR gold price depreciating temporarily to almost R505,000/kg, a 7% fall from the R542,773/kg average prevailing during our 2017 financial year.

Over the past year, it became apparent that the headwinds affecting deep-level underground mining in South Africa could no longer be ignored. Uncertain regulations and legislation, a hostile operating environment, escalating costs and weak commodity prices, inter alia, conspired to threaten the existence of marginal operations and the groups operating these mines. Shareholders and other capital providers, disillusioned by past losses, are no longer willing to fund continued loss-making operations.

When a management team is confronted with circumstances that demand action, I believe it is important to analyse the situation carefully and honestly, and then work to identify, further develop and finally agree on remedial actions. It is critical that whatever actions are agreed on, are implemented quickly and, as far as possible, faultlessly.

During the 2018 financial year, our team dealt decisively with those issues threatening the future sustainability of the group. Further, we have positioned the group to be globally competitive, in terms of producing quality, low-cost and safe gold ounces going forward.

CHIEF EXECUTIVE OFFICERS STATEMENT



The key challenges and matters that required managements attention during the 2018 financial year are as follows:

Segment Challenge/Opportunity Management action Status

Evander Mines underground operations

Curtailment of the cash burn at Evander Mines underground operations, particularly given the depressed ZAR gold price environment

Opportunity to mine the shaft pillar and perform reclamation work

The curtailment of large-scale underground mining operations at Evander Mines and the resultant retrenchment of 1,635 employees was difficult and regrettable, however, our group had no viable alternative. More detail on considerations in this regard and process followed is included in the operational and performance review on page 53

The management team is currently reviewing and assessing options to access and mine Evander Mines 8 Shaft pillar

The retrenchment process was successfully concluded on 31 May 2018. The requirements of S189A of South African Labour Relations Act, 66 of 1995 were complied with

The outcome of the assessment to mine the Evander Mines 8 Shaft pillar will be communicated in the near future

Elikhulu Construction of the Elikhulu plant ensuring the plant is completed on schedule and within budget

Construction commenced in August 2017, with detailed planning and coordination to minimise potential delays and cost overruns

Elikhulus inaugural gold pour was on 16 August 2018, within one year of inception of the construction. The plant was fully commissioned during September 2018. Construction work on the enlarged Kinross TSF continues

BTRP Unexpected coarse fraction material encountered, resulting in reduced plant throughput and gold recoveries from the BTRP

Installation of a regrind mill to assist with material handling and improved recoveries from the Harper dump coarse fraction material. Process of design and construction was fast tracked, and completed in less than six months

The regrind mill was successfully commissioned in May 2018, and the BTRP is again performing in line with expectations

Fairview underground operations

Limited mining flexibility within the Fairview Main Reef Complex (MRC) orebody

Development of two high-grade mining platforms in the MRC orebody to improve mining flexibility. This development was completed during January 2018

Barberton Mines has increased its ongoing development rates in the 2019 financial year with the objective of establishing a third high-grade platform in the Fairview 11-block by the end of June 2019

The 358 and 272 high-grade mining platforms are currently in production with a commensurate increase in Barberton Mines head grade in the second half of the 2018 financial year. These platforms will be available for the next two to three years, allowing sufficient time for development into new mining areas

Fairview mining operation is restricted by the hoisting capacity of its 3 Decline, which is also used by employees to access workings below 42 Level and the high-grade 11-block of the MRC

The Fairview sub-vertical shaft project will improve ore handling efficiencies and significantly reduce the time taken by employees to access high-grade mining platforms. The sub-vertical shaft project is estimated to improve production by approximately 7,000oz to 10,000oz per annum

The R105.0 million project is scheduled for completion over the next two to three years

Further organic growth

Barberton Mines Royal Sheba Project presents an opportunity to expand Barberton Mines production profile and access low-cost near-surface mineable ounces over the short to medium term. We did not previously identify the opencast opportunity at Royal Sheba and are exploring similar targets within our mining right area

Engaged in a surface drilling campaign and appointed DRA Global to complete a feasibility to mine the Royal Sheba orebody as an opencast mining operation and then in future an underground operation

The drilling campaign has been completed with excellent results confirming the extension of the orebody to surface. We have updated the market on the prospectivity of Royal Sheba, and are now considering alternatives to expedite first gold and a large steady-state operation

Labour relations

Barberton Mines wage agreements expired at the end of the current reporting period

Engaged with representative unions in order to agree a multi-year agreement to the benefit of all stakeholders

Concluded a three-year wage agreement with Barberton Mines representative unions

For further details of the groups mining operations, refer to the operational and performance review on page 48.




CHIEF EXECUTIVE OFFICERS STATEMENT continued

The performance of your company during the current reporting period was credible under the circumstances, with 160,444oz of gold produced and sold, generating total revenues of R2.69 billion (including discontinued operations). Profits from continuing operations amounted to R202.0 million (2017: R700.6 million) or GBP11.5 million (2017: GBP40.7 million). Clearly, the challenges we faced during the period, which were well flagged to the market, resulted in a loss during the 2018 financial year. However, the company has a significantly more stable base from which to return to growth and has reduced the risks from macro events through sustainably producing low-cost and higher-margin gold ounces.

In terms of safety performances, significant progress was made over the past year with on-mine safety improvement campaigns contributing to these results. Further, Barberton Mines achieved a milestone of one million fatality-free shifts during June 2018. After the 2018 financial year-end, on 13 August 2018, Barberton Mines Fairview operation also went on to achieve its one-million fatality-free shift target. To ensure continued safety improvements, the group will engage independent safety experts to review each of the mining operations safety systems and controls. We are, however, firmly of the view that we cannot outsource safety, and we work tirelessly to instil a sense of ownership for safety in each of our employees and managers.

The group experienced no fatalities in the 2018 financial year (2017: three fatalities). The groups lost-time injury frequency rate (LTIFR) remained stable at 3.73 (2017: 3.51), while the reportable injury frequency (RIFR) rate improved materially to 1.08 (2017: 1.53). In the next year, the group will work to further improve safety rates.

The disposal of Phoenix Platinum in the current financial year demonstrates the groups future focus on gold.

Pan African Resources reaffirms its commitment to paying dividends to its shareholders, with a stated dividend policy of distributing 40% of free cash flow to its shareholders. Following a challenging year, the persistent low gold price, currency volatility, and considering the losses incurred by Evander Mines underground operations and the associated costs of retrenchments, the board has resolved to forgo proposing a dividend for the 2018 financial year.

During the current reporting period the group paid a dividend of R185.0 million or GBP10.0 million (2016: R300.0 million or GBP17.1 million) on 21 December 2017, relating to the 2017 financial year. This dividend equated to R0.08279 per share or 0.44561 pence per share (2016: R0.1544 per share or 0.87668 pence per share). With Pan African Resources business being repositioned to secure sustainable low-cost, higher-margin production, the groups prospect of reintroducing dividends will substantially improve in the next year.

STRATEGYOur strategy is underpinned by four pillars: profitable, sustainable, stakeholders and growth. Their key enablers are people, action and results.

As a business seeking sustainable growth, we continually look for value-accretive opportunities that meet our stringent investment criteria. Our strategic focus areas for the next year are:

Increase Barberton Mines productionRamping up development at Fairview is expected to restore Barberton Mines production to approximately 100,000oz per annum on a sustainable basis. The new development platforms, supported by the sub-vertical shaft, will enhance mining flexibility and efficiencies and result in mining a more constant head grade.

With the recently implemented initiatives already having stabilised production output at the Fairview and the Barberton operations, we are now looking to the development of Royal Sheba to further reduce the cost of production from the Barberton Mines complex.

Barberton Mines Royal Sheba Project presents an opportunity to expand Barberton Mines production profile on the short to medium term. The drilling campaign conducted during the year increased the Royal Sheba gold resource by 150%, 0.36Moz to 0.9Moz.

Limiting work stoppages is critical to ensuring stable production from Barberton Mines. I am pleased to report that post the 2018 financial year-end, the group entered into a three-year wage agreement with the National Union and Mineworkers (NUM) and United Association of South Africa (UASA), with a 6.5% and 5.5% increase, respectively.

Deliver Elikhulu to expectations and integrate Elikhulu and ETRPElikhulu, which is expected to produce some of the lowest-cost ounces in the South African gold mining industry, is critical to Evander Mines return to profitability and delivering into the groups strategic repositioning. Tailings which were deposited over the past 70 years of mining activity, will be re-mined in line with industry best practices and consolidated into a single facility, which will mitigate environmental risks and make substantial surface areas available for other land uses, including housing and/or agriculture.

From December 2018, Elikhulus processing capacity should increase to 1.2Mt per month by incorporating the existing ETRP throughput into Elikhulus, thus leveraging plant efficiencies and benefiting from economies of scale.

The Elikhulu plant is expected to produce 57,000oz to 60,000oz during the 2019 financial year, at an all-in sustaining cost per ounce of approximately USD650/oz at the prevailing exchange rates.

Further future growth in goldAs previously announced on 2 May 2018, the group undertook to reassess the Egoli Projects original feasibility study as a standalone project, following cessation of the large-scale underground operations at Evander Mines. The feasibility study remains attractive with a pre-taxation net present value (NPV) of R1.04 billion and an internal rate of return (IRR) of 34%.

Disciplined capital allocation remains a priority in assessing any expansion programme or acquisition. We are a growth-orientated company. However, we balance this objective with our shareholders aspiration for an attractive sector-leading dividend.


OUR OPERATING ENVIRONMENTSouth AfricaOf the worlds major gold producers, South Africa continues to be one of the most expensive countries in which to mine the metal as confirmed by GFMS, a London-based metals consultancy firm, which noted that the South African gold mining industry had the biggest rise in production costs in 2017.

Lower ZAR gold price impactYear-on-year, the average value of gold in rand terms fell from R542,773/kg to R538,100/kg. The declining ZAR gold price amplified the impact of rising cost inflation on the groups margins and bottom line.

Rising trend of civil unrest In South Africa, strikes, unrest and service-delivery protests are increasing due to a sense of disempowerment and lack of employment opportunities, compounded by the lack of investment and economic growth.

Frustrated with slow delivery from the public sector, protesters are increasingly demanding employment and procurement opportunities for local entrepreneurs from private sector operators. Although Pan African Resources is materially compliant with our legislative, social, labour and CSI obligations, mines are increasingly being expected to fulfil the governments responsibility of providing basic services to communities in addition to being employers. Inter-union rivalry is a compounding factor, with each competing for members and influence.

During the reporting period, production was significantly impacted by numerous community unrest stoppages, particularly in the Barberton area and its surrounding communities. In April 2018, Sheba Siding residents demanding jobs decided to block roads and stone the vehicles entering the Sheba mining operation. Despite this, most employees still made a concerted effort to report for work. Further production shifts were lost due to protected and unprotected strikes involving 1,900 workers who protested about living allowances and the dismissal of two union leaders. Barberton Mines lost 58 production days across the three operations due to these civil and labour disturbances.

Meanwhile, in October 2017, Elikhulu at Evander Mines experienced unrest from a lobby group thought to be seeking tenders from the project, but operating under the guise of a civic organisation. Following assaults on Evander Mines employees, these protests disrupted operations for several days.

OUR STRATEGY IS UNDERPINNED BY FOUR PILLARS: PROFITABLE, SUSTAINABLE, STAKEHOLDERS AND GROWTH. THEIR KEY ENABLERS ARE PEOPLE, ACTION AND RESULTS.

Mining companies, employees and the surrounding communities should ideally collaborate for the mutual benefit of all, and we have established various project teams to engage with stakeholders and establish more harmonious working relationships. We are seeing the impact of our intensified engagement, with very limited interruptions to operations since April 2018.

Shifting scenarios for miningAcross Africa we are seeing a political shift toward resource nationalism, with governments imposing new obligations, penalties and taxes on mining companies. At the same time, authorities are shifting certain of their functions and responsibilities onto the mines, resulting in further adverse cost consequences. Legislators across the continent need to engage with mining companies pragmatically, otherwise sorely required investment into the sector may be allocated elsewhere. Considering the large capital investment and long lead times typically associated with mining, regulatory certainty is key to the future success of the mining industry.

Government bodies, mining companies, regional communities and workforces need to agree on the significant value that gold mining contributes to national and local economies. These stakeholders should collaborate to extract optimum value from South African mining for the benefit of all.

The incoming Mining Charter III, which is still being negotiated, has prolonged regulatory uncertainty in South Africas mining industry and delayed much-needed investment decisions. Other acts, such as the National Environmental Management Act (NEMA), also impact our mining operations and future expansions.

Illegal miningGolds intrinsic value and the growing unemployment, poverty and inequality in South Africa have contributed to an increase in illegal gold mining. PricewaterhouseCoopers Inc. (PwC) South Africas Mine Report 2017 estimated the value of illegal mining to be billions of rand a year, or equivalent to about 430,000oz of gold per annum.

Organised crime syndicates are involved in illegal mining and it appears that terror groupings may also be tapping into this financial resource. Law enforcement authorities often lack the resources to suppress these activities and mine operators have no choice but to deploy security teams, with a concomitant increase in costs.

In the current reporting period, the group changed security contractors and we continue to engage and work with all stakeholders to minimise the impact of illegal mining.



CHIEF EXECUTIVE OFFICERS STATEMENT continued

GlobalThe World Gold Council is optimistic about the gold sectors prospects in calendar year 2018 particularly as the global economy enters its tenth year of gradual recovery following the 2008 financial crisis.

Positive factors expected to affect the gold industry in 2018 include Chinas more sustainable economic growth trajectory, returning consumer demand and the Indian governments restructuring of its gold sector. Various initiatives around the world are bolstering domestic gold markets. These include a spot gold exchange in India and probable changes in Russias taxation rules relating to gold.

Increased demand depends on factors such as possible US dollar weakness and falling share prices, as well as major demographic shifts and income growth in golds largest markets India and China. Demand from Asia for physical gold is expected to grow as other financial instruments lose their sparkle.

Political and economic risk levels across the world are intensifying, with dominant countries jockeying for political and trade influence. Political risk is historically positive for gold prices due to its safe-haven status in unpredictable times.

SUSTAINABILITYLong-term economic sustainabilitySustainability goes beyond CSI projects, environmental studies and tick-box exercises. The cornerstone of sustainability is a profitable long-term business. Without profits and cash flows, community or environmental initiatives are unsustainable. If the underlying value proposition of a business erodes to the extent that it is unsustainable, all other objectives and stakeholder aspirations will fall by the wayside.

Further, we are dependent on domestic and internal debt and equity markets for raising capital to invest in our operations. Unless we are attractive to these markets as an investment proposition and generate

adequate cash flows with which to redeem debt, we will not be able to sustain or grow our operations.

Risk management is critical in mining and we have worked diligently at creating a culture of risk consciousness at all levels within our operations. This has contributed to a commendable safety record for the year under review. We continue to prioritise safety on a daily basis.

Operational risk management has also been emphasised, with a review of Barberton Mines operations and the implementation of risk management programmes to ensure mining and processing risk is reduced to an acceptable level.

We are not aware of any legal proceedings or material conditions that may impact the companys ability to continue mining or exploration activities.

Our competitive advantageOur organisational culture prioritises a set of values atypical of the hierarchical structure found in traditional mining companies. In this way, internal politics and bureaucracy are curtailed by fostering a unique mindset of frank, open debate and accountability. Decision-making and execution is well informed and fleet-footed to ensure optimal operational efficiency.

Operationally, a substantial portion of our production stems from relatively low-risk, long-life surface sources. While our tailings processing method is common, our execution is results-driven and we delegate authority to specific teams to empower them to achieve their operational objectives. Our BIOX technology gives us a competitive edge to treat and recover the high-grade gold pyrite found in Barberton.

Geologically, our Barberton orebody is vastly distinct from any of the Wits basin operations and the Fairview Mine is one of the highest-grade orebodies in the world with a life-of-mine of approximately 20 years.


Positively impacting our communitiesOur mines engage in a range of development projects and community relations activities, which promote sustainable welfare within our local communities.

In partnership with the Adopt-a-School Foundation, Barberton Mines revamped a special-needs school in the Emjindini Township in August 2017. The Thembelihle Cerebral Palsy Care Centre was originally a wooden shack accommodating 30 young learners with severe disabilities. The centre was upgraded into a state-of-the-art facility, with classrooms, dormitories, ablution facilities, a dispensary, kitchen and dining facilities, offices and two flats for on-site staff.

Following the success of this initiative, Pan African Resources commenced a second Adopt-a-School initiative at Evander Mines. Additional information regarding our community engagements is disclosed in the sustainability review on page 79.

EnvironmentalRehabilitation, closure and liabilities are fully funded via a dedicated trust and insurance products. Our mining operations are primarily underground, and our tailings projects actively clean up land surfaces. Elikhulu, for example, will free up significant portions of land for other uses. We are also lining the new extension of the Kinross dam to reduce the environmental impact of deposition.

Acid mine drainage doesnt occur at our mines due to the lack of sulphur in our orebodies and waterborne pollution is carefully monitored to ensure minimum impact.

The BTRP commissioned a cyanide detoxification plant in Barberton to reduce the long-term impact of the tailings deposition on the environment.

OUTLOOK AND PROSPECTSOur priorities for the foreseeable future are linked to the four pillars underpinning our strategy. Elikhulu was fully commissioned during September 2018. Post commissioning, Pan African Resources is poised to produce approximately 91,000oz of gold a year from all the tailings operations at an all-in sustaining cost of below USD650/oz at the current prevailing exchange rates. This forecast excludes further tailing and surface sources processed in the old Kinross plant.

The stand-out highlight at financial year-end is that Pan African Resources emerged more robust and better positioned for the future from what was possibly our most challenging year. The emphasis is now on delivering to market expectations and demonstrating the groups sustainability and profitability.

APPRECIATIONI would like to thank my fellow board members for their guidance, support and insight during the past financial year. Further, a sincere thanks to the executive management team and all employees, who continued to show commitment and dedication during this challenging period.

Finally, to our stakeholders, thank you for your ongoing support of Pan African Resources. While times may be marked by turbulence and volatility, we believe the group, with its current strategic direction, is well positioned to flourish and maximise value for our shareholders and our other stakeholders in the year ahead and well into the future.

Cobus LootsChief executive officer

19 September 2018

PAN AFRICAN RESOURCES HAS STARTED THE 2019 FINANCIAL YEAR WELL, AND WE ARE ON TRACK TO ACHIEVING OUR PRODUCTION GUIDANCE OF APPROXIMATELY 170,000oz FOR THE 2019 FINANCIAL YEAR. WE WILL CONTINUE TO FOCUS ON IMPROVING AND EXPANDING OUR PORTFOLIO, ON A SUSTAINABLE AND VALUE-ACCRETIVE BASIS, TO THE BENEFIT OF ALL STAKEHOLDERS.



STRATEGIC SCORECARD

Our strategic goals Strategic initiatives Strategic performance

What we would like to achieve How we will achieve our goals

Our self-assessment as at 30 June 2018

PROFITABLE

Attributable profitability

To improve profitability, earnings and cash flow generation at our operations, we are focusing on the following: Grade improvements and maintaining production levels through operational sustaining capital

of R289.4 million (2017: R330.0 million) and development capital of R1.36 billion (2017: R283.1 million)

Improve cash flow generation with the commissioning of Elikhulu and recent cessation of large-scale mining at the high-cost Evander Mines underground operations

Investment in infrastructure improvements, such as the refrigeration plant installed and commissioned at Fairview in July 2017 for R39.4 million

The group is currently developing and establishing the underground sections for the Fairview sub-vertical shaft project

New mining projects, such as Royal Sheba and Egoli, to maintain and increase future gold production

Maintaining an optimal capital structure to reduce interest and related expenditure Ongoing assessment of further internal growth and possible acquisitions

Mining profit margin from gold operations

Cost containment Reducing unit costs of production via increased gold production Cost containment through securing a three-year wage deal at Barberton Mines (concluded

after year-end) Regular review of all material contracts and other expenses on a regular basis, with a

well-established procurement function Cessation of large-scale mining at Evander Mines high-cost underground operations

has assisted the group in repositioning as a low-cost producer Review and reduction of corporate and other overheads, as well as a general culture

of thriftiness

Optimal grade/tonnage production profiles for operations and business plans

Increased development rates at our mining operations to sustain the replacement of Fairviews high-grade platforms at Barberton Mines

Increased exploration on our current mining areas and incurred R3.0 million (2017: R14.2 million) on the Royal Sheba Project and infill drilling on the Fairview 11-block

Well-established Mineral Resource and Mineral Reserve function, with annual review of all resources and reserves. New technology and techniques employed to maximise the value of Reserves and Resources

New infrastructure and projects, such as the combination of Elikhulu and ETRP, to improve gold production profile and reduce costs

SUSTAINABLE

Optimising Mineral Reserves for sustainable life-of-mine production profile

Implement earnings and cash flow-accretive growth with the focus on organic projects, such as Elikhulu and Royal Sheba

Well-established Mineral Resource and Mineral Reserve function, with annual review of all resources and reserves

Increased exploration and infill drilling to ensure longevity of our life-of-mines. The group incurred R19.1 million (2017: R22.3 million) in exploration expenditure

Operating profit margins

Operating margins have been impacted by the loss-making Evander Mines and the recent cessation of large-scale underground operations. Looking forward, the group has been repositioned as a low-cost gold producer following the commensurate improvement in future operating profit margins

New lower-cost projects, such as Elikhulu, to improve profit margins Investments such as the BTRP regrind mill to improve margins

All-in cash cost of production per kilogram

The group limits cost inflation per kilogram at continuing operations. The continuing operations all-in cost per kilogram was R463,145/kg (2017: R392,296/kg)





Environmental compliance

We continue to strive for and ensure compliance and zero-harm Regular external reviews on closure liability provisions, with adequate funding to address

closure Operations work closely with regulators who conduct inspections and, when required, request

corrective measures to be implemented New projects, such as Elikhulu, to reduce environmental impact of operations

Safety record and drive towards zero-harm

Significant progress was made over the past year with on-mine safety improvement campaigns contributing to these results. Further, Barberton Mines achieved its milestone of one million fatality-free shifts during June 2018

The group experienced no fatalities in the 2018 financial year (2017: three fatalities). The groups LTIFR remained stable at 3.73 (2017: 3.51), while the RIFR improved materially to1.08 (2017: 1.53)

Sufficient working capital and liquidity for maintenance and growth

The groups net debt increased in the current year, following the construction of Elikhulu and the recent cessation of large-scale mining at Evander Mines underground operations

Looking forward, the group is repositioned as a low-cost gold producer with a reducing debt profile and headroom for growth

In the coming year, the group will seek to further optimise its capital structure

Enabling company culture

Clear articulation of group values and culture, with management emphasising these values

Decentralised and effective management

Decentralised management structures ensure improved decision-making and sustainability of mining operations

Consistent monitoring of performance of the operational teams, with emphasis on critical areas

Engagement with local communities

Pan African Resources has been impacted by community unrest and the group continues to engage with our mining communities

New structures implemented to improve relations and intensified ongoing engagement with communities

Skills development and training

The groups mining operations continue to focus on skills and development training and have spent R24.3 million (2017: R32.1 million)

STAKEHOLDERS

Ongoing engagement The group continues to focus on improving and maintaining stakeholder communication and relationships. The following have been implemented to improve stakeholder engagement: Improved communication with employees through regular meetings, feedback and a new text

messaging system at Barberton Mines Communities are more actively engaged with the implementation and appointment of specific

structures and individuals at the operations, with the primary focus of working with our communities, making a difference to the lives of community members and addressing their expectations

Shareholders are updated regularly with operational updates The group recently concluded a BEE restructure on 15 January 2018, resulting in a 21%

BEE ownership on the respective mining operations via Pan African Resources SA Holdings Proprietary Limited (SA Holdco)

The employees own 5% of the mining operations through their employee share ownership schemes (ESOP)

All mining operations are based on the above BEE structures, with a 26% BEE ownership calculated for Barberton Mines and Evander Mines

The mining operations social and labour plan (SLP) commitments are monitored and the Department of Mineral Resources (DMR) regularly reviews compliance

Mining Charter compliance is also regularly reviewed, with engagement around proposed amendments to regulation closely monitored

Good progress Moderate progress No progress


MEDIUM-TERM ASPIRATION

220,000ozBY 2021

ANNUAL TARGET

170,000ozPER ANNUM


STRATEGIC SCORECARD continued




Return on shareholder funds

The groups shareholder returns were impacted by a lower gold price environment and the cessation of large-scale mining at Evander Mines underground operations

Looking forward, an improved performance is expected following the repositioning of the group as a low-cost gold producer

The group has an established track record of attractive shareholder returns, with any new project required to meet and exceed hurdle rates of return

Dividend track record The group has a history and strong track record of dividend payments and will endeavour to reinstate the dividend, following the measures implemented to cease large-scale mining at Evander Mines high-cost underground operation and the resultant retrenchment of 1,635 employees

The groups prospect of reintroducing dividends will substantially improve in the next year

Safety record The group had an improved safety performance across all operations, with zero fatalities during the current reporting period

Barberton Mines achieved one million fatality-free shifts in June 2018 Barberton Mines Fairview operation achieved one million fatality-free shifts during

August 2018

Union engagement and relationships

The group continuously engages with its employees and, post the 2018 financial year-end, concluded a three-year wage deal at Barberton Mines with no recent material industrial action incidents

Wage increases and appropriate remuneration policies

The group ensures all employees are remunerated appropriately at the various levels. The group further benchmarks remuneration relative to other mining houses

Contributions to revenue authorities

The group contributed R222.6 million (2017: R338.9 million), excluding VAT, to revenue authorities. The reduced contributions are predominantly due to income taxes which declined to R11.8 million (2017: R105.7 million) and are linked to the groups profitability, which was impacted by the low ZAR gold price environment and the cessation of large-scale mining at Evander Mines underground operations

CSI/LED spend The group maintains contributions to CSI/LED projects as required by legislation. The group spent R13.6 million (2017: R24.3 million) on CSI/LED projects

The group incurred R1.1 million on retraining Evander Mines employees, following the retrenchment exercise on 31 May 2018

GROWTH

Organic growth (achieved within existing infrastructure)

The group is fortunate to have numerous organic growth projects. The group is currently focusing on Elikhulu, Egoli and Royal Sheba to improve its production profile over the short and medium term

Acquisitive growth (achieved outside of existing infrastructure)

The board is conscious of the requirement of our stakeholders for value creation and all capital allocation decisions are subject to rigorous analysis and predefined risk-adjusted return parameters to ensure this objective is fulfilled. The group continuously assesses potential opportunities to grow via value-accretive acquisitions

Replacement of Mineral Reserve projects for depleted projects

The group continues to ensure the appropriate allocation of sustaining capital to replace Mineral Reserves mined and sustain the life-of-mines of continuing operations

The group has recently undertaken a surface drilling campaign at Royal Sheba, which is further discussed in the abridged MR&MR on page 60

Good progress Moderate progress No progress


OPERATING ENVIRONMENTfor the year ended 30 June 2018

STRONG RAND ERODING SOUTH AFRICAN GOLD MINES MARGINS While the strengthening of South Africas rand against

the dollar in recent months has been widely welcomed by many, it has somewhat dampened the outlook for exporters and mining firms reliant on a weakening currency to offset inflationary pressures

The resultant decline in the ZAR gold price, which has exacerbated the impact of high production costs, is expected to continue to hinder gold gains and erode profitability in the short term

GLOBAL MARKET CONDITIONS APPEAR SOUNDER IN 2018 A weaker US dollar and inflation reduced the gold price

over the period under review

Political and economic risk levels have increased across the world

Golds safe-haven status supports its price in uncertain times

Prospects for gold demand are positive for 2018, particularly in developing economies with young investment markets

GOLD PRODUCTION IS CURRENTLY CONSTRAINED BY SOCIO-POLITICAL CHALLENGES South Africa has an unemployment rate in excess of 25%,

providing fertile ground for social unrest

Strikes, unrest and protests are increasing due to general dissatisfaction with service delivery, political manoeuvring and chronic unemployment

Mining groups are under pressure to meet community demands for employment and infrastructure

Illegal mining is on the rise

EVOLVING REGULATORY LANDSCAPE CREATES UNCERTAINTY The mining industry in South Africa is subject to extensive

legislation and regulations

Amendments to the MPRDA have introduced some onerous requirements, with enhanced sanctions for non-compliance

A revised Mining Charter was published by the DMR on 15 June 2018

Uncertainties around the legitimacy and feasibility of these amendments run the risk of increased investor dissonance

South African

market dynamics

Regulatory complia

nce,

change

s and

amend

ments

Global go

ld market

dynamics

Expectations of communities

and external stakeholders

Refer to chief executive officers statement on page 12 for more detail.



RISKS, OPPORTUNITIES AND MATERIAL ISSUES

To remain profitable and sustainable, Pan African Resources thoroughly evaluates all actual and potential risks that may impact stakeholders or threaten the groups viability. Risks are prioritised, assessed for their probability of occurring and their potential impacts. Simultaneously, we also consider the opportunities that may arise for such risks. Risks deemed serious enough are mitigated by contingency plans for swift responses.

The nature and potential severity of the groups risks as re-evaluated from year to year also inform Pan African Resources ongoing strategy. Though the group has a formal risk management function that reports to the financial director, consistent with the groups risk management culture, managing risk is regarded as the responsibility of everyone in the group.

RISK MANAGEMENT APPROACHPan African Resources risk management philosophy and appetite is set and overseen by the board. Risk appetite levels are aligned with board-approved strategic objectives, with risk appetite levels adjusted according to changing internal and external scenarios.

Pan African Resources risk is managed with the objective of optimising, within our risk appetites, our ability to create value in the short, medium and long term. For ease of understanding, the group aggregates its identified risks into four categories.

PAN AFRICAN RESOURCES PRESENTLY OPERATES IN SOUTH AFRICAS MATURE AND HIGH-RISK GOLD MINING SECTOR, WHICH IS CHARACTERISED BY DIMINISHING OREBODIES AND, IN RECENT YEARS, HAS BEEN HEAVILY IMPACTED BY MACROECONOMIC AND SOCIETAL PRESSURES.

Macroeconomic Financial Operational Strategic

Mainly beyond the groups control and is increasingly volatile, though we manage or mitigate as proactively as we can

Managed and monitored proactively through a centralised treasury, capital allocation discipline, statement of financial position, gearing levels, access to funding and adherence to risk management and internal control policies

Hands-on management through approved processes and ongoing monitoring of performance against targets and benchmarks

Impacting the groups ability to execute strategy and deliver against strategic objectives

Factors impacting value creation Material issue Principal risk

Macroeconomic Managing our evolving regulatory environment, alongside volatile commodity and currency prices

Regulatory and legal Financial

Financial Financial sustainability in a challenging economy with political and macroeconomic volatility

Financial Operational Regulatory and legal

Operational Operating in a safe and healthy environment, supported by continuous engagement with stakeholders affecting operations

Respecting the natural environment

Safety Operational Environment

Strategic Extracting reserves and resources in a responsible manner Attracting and retaining key talent Operating in a challenging environment with increasing

domestic political risk Ensuring longevity of operations

Operational Financial Regulatory and legal Reputational social licence to operate


PLANPrepare management responses to mitigate threats and maximise

opportunities

RISK MANAGEMENT PROCESSThe groups risk management process is guided and informed by the external environment (macroeconomic), specific regulatory requirements and its internal environment (financial, operational and strategic), all of which continually enlighten the groups strategy. Day-to-day risk compliance and implementation is the responsibility of operational management and the executive and operations committees at the corporate office. The board and audit committee provide oversight of the risk management process.

Identified risks are benchmarked against its listed peers to ascertain if these risks are industry-wide and to provide comfort to the board that an industry-specific risk is not excluded.

The groups risk management system is based on a systemic process for reviewing Pan African Resources internal and external risks. This risk management process consists of the following main elements:

Summary of risk management procedure

QUARTERLY

board risk governance

Board

Audit

SHEQC

Social and ethics

MONTHLY

management risk governance

Exco and Opsco

ONGOING

operations riskmanagement

Operations management committees

Risk coordinators

Risk matrix per operation

RISK REGISTERREVIEW

COMMUNICATEProvide regular reports to the Financial officer

and audit and risk committee at agreed

times

MONITOR

AND REVIEWMonitor and review the performance of the risk management system and

changes to business initiatives

IMPLEMENTRisk responses are actioned

IDENTIFYIdentify risks (threats

or opportunities), which are documented by

the risk register owner

ASSESSDocument the net effect

of all identified threats and opportunities by assessing: likelihood of threats and

opportunities impact of each risk proximity of threats prioritisation based

on scales

Risk assessment matrix

Update risk register



Board risk governance The board is responsible for oversight of the groups risk management approach and is guided by the audit committee, its own internal risk assessments and regular reviews of the risk reports from each operation. A formal safety, health, environment, quality and community (SHEQC) committee informs the board on safety, health and environmental aspects. Each year the board reviews the groups risk appetite to ensure it remains relevant to the groups strategy as circumstances change. The board also ensures the appropriate risk management programmes are in place and monitors the implementation of risk-mitigating strategies against key risk indicators.

To ensure that risks are monitored daily and amended as necessary, each risk is assigned to a risk owner. Risks and their respective risk owners are recorded in the groups risk register.

RISK, OPPORTUNITIES AND MATERIAL ISSUES continued

PRINCIPAL IDENTIFIED RISKS The heat map alongside depicts the groups top risks in order of priority, along with their comparative risk rankings. The table on page 25 describes each principal risk, how it is mitigated and how it is aligned to the groups strategic pillars.

Top 6 risks1. Safety (2017: 1)

2. Regulatory and legal (2017: 3)

3. Operational (2017: 2)

4. Financial (2017: 4)

5. Reputational social licence to operate (2017: 5)

6. Environmental (2017: 6)

Mag

nitu

de o

f mat

eria

l mat

ter

1

3

4

5

6

2

Low impact, high

likelihood

High impact, high

likelihood

High impact, low

likelihood

Low impact, low

likelihood Probability of occurrence

FAST FACTS

2017 MINING CONTRIBUTION SUMMARY:

Direct contribution of

Documents

INTEGRATED ANNUAL REPORT - panafricanresources.com · The process for defining the report content was guided by the recommendations contained in the International Integrated Reporting